On April 9, 2011, the People’s Bank of China issued the Announcement of the People’s Bank of China [2011] No. 3 (“Announcement”) regulating bond transaction activities on the national interbank bond market, which took effect on the same day. The Announcement and the rules contained therein focus on improving the administration of transactions on the national interbank bond market. According to the Announcement, the National Interbank Lending Center (“NILC”), the China Government Securities Depository Trust & Clearing Co. (“CDC”) and the Shanghai Clearing House (“SCH”) shall formulate and implement business rules in accordance with this Announcement and file such rules with the People’s Bank of China.

The key provisions are described below:

  • The NILC, CDC and SHC are to conduct regular monitoring and administration of bond transactions, settlements and clearings of the national interbank bond market. If abnormalities are found, they must deal with the issue in a timely manner, report it to the People’s Bank of China and forward a copy to the National Association of Financial Market Institutional Investors (“NAFMII”). They may also disclose the abnormal market transactions to the market based on the specific circumstances.
  • National interbank bond market settlement agents (“Agents”) may conduct bond transactions on behalf of clients via the transaction system of the transaction center. If a transaction is not conducted through the transaction system of the NILC, the principals or the Agents involved shall file the related transaction with the NILC on the date the transaction closes.
  • Market participants shall abide by all rules and regulations of the national interbank bond market, strengthen internal control and risk systems, regulate their own settlement activities and shall not manipulate or fabricate prices or otherwise mislead the market. Market participants shall cooperate with regular monitoring and administration by NILC, CDC and SHC, and provide written materials as required. If market participants conduct abnormal transaction activities, including the occurrence of a transaction price deviating from the fair market value due to special circumstances, they shall file details with the NILC, CDC or SHC for their records prior to the closing of the transaction.
  • Agents shall provide agency transaction settlement services to clients on a fair basis and may not mislead or defraud clients. Agents may not conspire with clients or facilitate the conduction of false transactions or irregular operations. Agents shall supervise clients’ transaction settlement activities and if they find abnormal settlement activity with considerable deviation from market prices, Agents shall issue a risk warning and ask the clients to explain the situation and have them report it to the NILC, CDC and SHC.

For more information on the announcement, please visit the following Chinese language link: http://www.pbc.gov.cn/publish/goutongjiaoliu/524/2011/20110413103302565390843